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As Korea’s potential growth slips into the 1% range, deregulation is needed to reverse the trend

Published: 20 Jan. 2026, 00:04

Lee Jong-ho

The author is a professor of Electrical and Computer Engineering at Seoul National University and a former minister of science and ICT.

As a new year begins, people naturally hope that their lives will improve. Yet a dark cloud hangs over the Korean economy as its potential growth rate continues to decline. Korea’s potential growth rate, which stood at around 3.8 percent in 2011, remained at 2.2 percent for three consecutive years beginning in 2022 before falling into the 1 percent range in 2025.

President Lee Jae Myung delivers opening remarks during a briefing on the National Growth Fund in Mapo District, western Seoul, on Sept. 10, 2025. [PRESIDENTIAL OFFICE]

This is troubling for two reasons. First, it is the first time since 2001 that Korea’s potential growth rate has dropped to the 1 percent level. Second, potential growth rates in the Group of Seven economies are rebounding. Foreign investors tend to avoid countries where growth prospects are deteriorating. The recent depreciation of the won may partly reflect concerns about Korea’s declining growth potential. This is precisely why reversing the trend this year and laying the groundwork for innovation-driven growth is so urgent.

In the era of digital transformation and AI, Korea must strengthen its technological and industrial competitiveness to enhance its national standing. Yet regulations often restrict technology development itself or fail to keep pace with new products’ functions and performance. Although the regulatory sandbox system was introduced to address this problem, it remains insufficient.

Korea should shift its legal and regulatory framework toward a system that regulates only what is explicitly prohibited and allows everything else. This approach enables faster and more efficient development of technologies and products. Problems can be addressed as they arise. Both the United States and China fundamentally operate under such regulatory frameworks. Why not make this year the starting point for such a transformation in Korea’s laws and regulations?

New growth engines are largely created through venture startups based on advanced technologies. In the past, startup activity in this sector was on an upward trajectory. Over the past one to two years, however, it has slowed or declined. The number of listed companies in this category has also fallen slightly. At the same time, more startups are being founded overseas or relocating abroad, raising concerns about Korea’s long-term growth prospects.

Many of these firms choose the United States because regulations are lighter and it is easier to attract talent and investment. Simply pouring water over barren soil does not guarantee that plants will grow well. Growth requires a supportive ecosystem that provides not only water but also adequate sunlight, temperature and nutrients.

The solution is ultimately a matter of choice. Regulations should be specific in principle, while sufficient investment and a flexible labor market must be ensured. These measures could even be applied temporarily, only until venture firms reach a stable growth phase. If implemented this year, they would also help curb the outflow of talented workers. At this moment, the growth of advanced technology ventures is critical. Korea needs an innovation ecosystem that spans from startups to large corporations.

Intellectual property (IP) also plays a vital role. A virtuous cycle can emerge only when IP is respected and properly rewarded. In the 2025 Global Innovation Index released by the World Intellectual Property Organization, Korea ranked fourth overall, up two places from sixth in 2024. This is welcome news.

While Korea’s overall IP trade balance is in surplus, supported by the global popularity of Korean content, the balance for patent royalties remains in deficit. This suggests that the quality of patents is still insufficient. Strengthening royalties or incentives for patents that contribute to industrialization would naturally lead to the creation of more practical new technologies. Respect for intellectual property can translate directly into innovation-driven growth. Wisdom lies in growing together rather than pursuing short-term gains.

Zack Jackowski, left, head of humanoid development at Boston Dynamics, and Oh Se-uk, head of the Robotics Business Innovation Group at Hyundai Mobis, take a photo with the Atlas humanoid robot after an interview with the Korean press on the sidelines of CES 2026 in Las Vegas on Jan. 7. [HYUNDAI MOTOR]

Rigid laws and regulations weaken technological competitiveness and ultimately lead to job losses. Legal and regulatory frameworks must become more flexible so that diverse types of companies and workers can grow together. New variables are already emerging, such as the use of AI for workplace safety management and wearable devices for health monitoring. Institutionalizing these technologies could significantly reduce workplace safety and health risks, allowing companies to focus more on innovation.

Through AI, Korea can improve safety in both industrial settings and everyday life while providing higher-quality education and healthier living conditions. Over time, this would increase incomes and could even help raise the birthrate.

In the era of AI transformation, bold action is essential if Korea is to secure leadership through innovation-driven growth. Time is running out. If Korea fails to raise its potential growth rate over the next few years, it could face a national crisis. Innovation-led growth is indispensable to building a country where people can live happy lives. Achieving this will require decisive regulatory reform and an extraordinary commitment from businesses, the government and both ruling and opposition parties alike.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.